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If you are not classified as an institutional investor, we will categorise you as a retail investor. At this time, we cannot send communications directly to retail investors. You are welcome to view the contents of this website and to register your details so we have a record for the future, however we will not send you any materials directly.

This website is maintained by WisdomTree Europe Ltd (registered number 08985846) with registered office at 3rd Floor, 31-41 Worship Street, London EC2A 2DX, United Kingdom. WisdomTree Europe Ltd is an appointed representative of Mirabella Advisers LLP which is authorised and regulated by the Financial Conduct Authority. Some of the contents of this website have been approved by Mirabella Advisers LLP.

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Persons

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area.

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the "Advisers Act").

Exclusion of Liability

Certain documents made available on the website may have been prepared and issued by persons other than WisdomTree Europe Ltd. This includes any prospectus. WisdomTree Europe Ltd is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, WisdomTree Europe Ltd shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no warranty as to the accuracy of any information or content on the website. The terms and conditions applicable to investors will be set out in the relevant prospectus, available on the website and should be read prior to making any investment.

Risk Warnings

You should always bear in mind that:

The investment performance of any security referred to on this website can be volatile and can go up or down and you can lose your entire investment.

Past performance is not an indication of future performance.

Rates of exchange may affect the value of investments.

Applications to invest in securities referred to on this website must only be made on the basis of the relevant prospectus.

Cookies

WisdomTree Europe Ltd may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes. These are statistical data about users' browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking 'I agree' below you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps WisdomTree Europe Ltd provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

Important Notice

By selecting 'Institutional investor', you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Elective Professional Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in an jurisdiction outside the European Economic Area.

This website is maintained by WisdomTree Europe Ltd (registered number 08985846) with registered office at 3rd Floor, 31-41 Worship Street, London EC2A 2DX, United Kingdom. WisdomTree Europe Ltd is an appointed representative of Mirabella Advisers LLP which is authorised and regulated by the Financial Conduct Authority. Some of the contents of this website have been approved by Mirabella Advisers LLP.

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Persons

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area.

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the "Advisers Act").

Exclusion of Liability

Certain documents made available on the website may have been prepared and issued by persons other than WisdomTree Europe Ltd. This includes any prospectus. WisdomTree Europe Ltd is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, WisdomTree Europe Ltd shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no warranty as to the accuracy of any information or content on the website. The terms and conditions applicable to investors will be set out in the relevant prospectus, available on the website and should be read prior to making any investment.

Risk Warnings

You should always bear in mind that:

The investment performance of any security referred to on this website can be volatile and can go up or down and you can lose your entire investment.

Past performance is not an indication of future performance.

Rates of exchange may affect the value of investments.

Applications to invest in securities referred to on this website must only be made on the basis of the relevant prospectus.

Cookies

WisdomTree Europe Ltd may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes. These are statistical data about users' browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking 'I agree' below you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps WisdomTree Europe Ltd provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

Exchange Traded Funds (ETFs) have many structural benefits that are already widely known to the marketplace, especially when compared to mutual funds: cost, transparency, efficiency and intraday liquidity are just some of those often cited benefits. If you look a little harder you’ll uncover an equally important, but an often overlooked aspect which really separates ETFs from mutual funds: the creation/redemption process.

ETFs have a unique creation/redemption process that isolates trading costs to that specific investor transacting and allows the existing investor to be shielded from impact and actions of other investors. This is incredibly important because in mutual funds, the costs associated from the actions of specific investors are borne by the entire fund. This means that all investors in the fund pay for the costs generated by other investors. With ETFs it is different: transaction costs are isolated to an investor’s own transactions.

In this blog we will dig deeper into how these processes work and why they are important.

Buying and selling mutual funds

When an investor buys a mutual fund, the cash is wired to the mutual fund company. The mutual fund portfolio manager takes that money and invests in the underlying securities. When the investor wants his/her money back, the mutual fund company is informed and the portfolio manager sells the securities in the portfolio to raise the cash to distribute back to the investor. This is considered a primary market transaction.

How does this compare to ETFs?

ETFs have a primary market and a secondary market. In a primary market transaction of an ETF, only authorised participants (APs) can create or redeem ETF shares directly with the issuer. During a primary market transaction, the AP will notify the ETF issuer and will either exchange cash or underlying securities for ETF shares. In this process, the fund is interacting directly with an AP, which is typically a large bank. Any costs associated with the creation or redemption are borne by that specific AP – and ultimately by that specific investor who inputted the original order by paying trading costs. This is one critical difference between ETFs and mutual funds.

ETFs can be bought and sold not just on the primary market, but also on the secondary market (that is, the exchange). The secondary market adds another layer of liquidity and is where ETF investors can buy or sell shares directly on the exchange. The primary market and secondary market interact regularly when it comes to ETF trading as shares are created or redeemed on the primary market to satisfy demand on the secondary market.

Why does this matter?

Simply put, the allocation of cost. In a mutual fund, trading costs from creating and redeeming mutual fund shares are borne by the fund. So when an investor redeems a mutual fund, the portfolio manager has to sell more securities to generate cash which translates to additional costs for these trades: bid/ask spreads of the underlying securities, taxes, trading commissions or exchange charges to name a few. These costs have a knock on effect on the NAV of the fund and a direct impact for the other investors in the fund. In essence, all of the investors are paying for the actions of one investor.

In practice

An investor wants sell an ETF and will engage the broker or ETF trading desk and submit an order (this often takes place on the secondary market)

Depending on a variety of factors, the AP may choose to redeem those shares on the primary market

The AP will go to the ETF issuer and submit a primary market order for the shares to be redeemed

The portfolio manager will then either sell the securities to generate cash or will deliver the AP the underlying shares and the ETF shares will be redeemed.

This process and any costs associated with it are borne by the specific investor that generated the trade. The costs will flow through the trading desk, or authorised participant. Existing investors in the ETF are isolated from these costs.
With the many advantages that ETFs have, it’s no wonder ETFs continue to gain ground on the mutual fund industry. While liquidity, transparency and efficiency often enjoy the spotlight, we believe the ETF creation/redemption process drives value and should never be overlooked.

This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, its officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.

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This website and its content has been provided by WisdomTree Europe Ltd which is an appointed representative of Mirabella Advisers LLP which is authorised and regulated by the Financial Conduct Authority.

The price of any Shares or the value of an investment in ETPs may go up or down and an investor may not get back the amount invested. Past performance is not a reliable indicator of future performance. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any financial instrument or product or to adopt any investment strategy.

For Professional Clients only. If you are not classified as either a Professional Client or Elective Professional Client. See client types here: Investor Types

If you are not classified under either of the other two categories, we will categorise you as a retail investor. You are welcome to view the contents of this website and to register your details so we have a record for the future, however currently we do not send materials directly to retail investors.